Sun | Jun 4, 2023

Court appoints debt mediator between Argentina, bondholders

Published:Wednesday | July 2, 2014 | 12:00 AM

Argentina will likely miss a bond payment on Monday, setting it on a course for a possible catastrophic default.

Argentina owes an interest payment to the majority of its creditors, but the government has a 30-day grace period after Monday to avoid going into its second default in 13 years.

The US Supreme Court recently turned down Argentina's attempt to block a lower court ruling that it must pay hedge funds that own bonds left over from its record USUS$100 billion default in 2001.

US District Judge Thomas Griesa urged Argentina on Friday to continue negotiating with the funds that refused to participate in debt swaps in 2005 and 2010. The judge also said it would be illegal for Argentina to make a payment to the majority of its bondholders without also paying more than USUS$1.5 billion to the holdouts.

Griesa appointed a special master last week to facilitate talks because Argentina indicated through its lawyers that it planned to negotiate for the first time with the US bondholders.

President Cristina Fernandez de Kirchner has long refused to negotiate with the plaintiffs, led by New York billionaire Paul Singer's NML Capital Limited, who spent more than a decade litigating for payment in full rather than agreeing to provide Argentina with debt relief. But Fernandez has been backed into a corner by NML Capital's payment plan.

The holdout creditors accused Argentina on Monday of refusing to begin talks.

"Argentina's professed willingness to negotiate with its creditors has proven to be just another broken promise. NML is at the table, ready to talk, but Argentina has refused to negotiate any aspect of this dispute," Elliott Management, which runs NML said in a statement.

"There are no negotiations underway, there have been no negotiations, and Argentina refuses to commit to negotiations in the future. Argentina's government has chosen to put the country on the brink of default. We sincerely hope it reconsiders this deadend path."

But later on Monday, Argentina's economy ministry issued a statement saying it would send a delegation to New York to meet with the debt- negotiation mediator on July 7.

fair and legal conditions

"Argentina reiterates its intention to negotiate in fair and legal conditions that take into account the interests of 100 per cent of the creditors, which means that the restructured bonds are allowed to collect on the deadline," the statement said without specifying who will be part of the delegation.

Fernandez wants equal treatment for the more than 92 per cent of creditors who have been collecting in "exchange bonds" since writing off more than two-thirds of their defaulted bonds' face value in past debt swaps. And she also wants the participation of the remaining seven per cent of holdouts who didn't sue Argentina or who weren't part of the winning case.

Paying the hedge funds that Fernandez often calls "vultures" in full would likely trigger lawsuits from other bondholders demanding to be paid on similar terms. Argentina's government estimates that the liability could run up to USUS$15 billion.

With nearly USUS$29 billion in foreign reserves, Argentina appears to have the money to pay its bills. But those reserves include loans to other countries, deposits with the IMF and other assets that aren't easily used. Take those away, and Argentina has roughly USUS$16 billion on hand.

Troubled countries often find bond investors willing to lend to them to pay other creditors. But Argentina has been locked out of the bond markets for more than a decade.

Fernandez and her husband, the late President Nestor Kirchner, have used much of the Central Bank's reserves to pay down Argentina's debts, provide energy subsidies and fund social programmes, weakening its ability to control one of the world's highest inflation rates and manage the money supply.

"This is a legal chess game," said Alberto Ramos, Latin America analyst at Goldman Sachs.

"If (Argentina) solves this, its worries about reserves disappear. The worry about reserves comes from the fact that this is still an open issue that prevents access to normal and conventional sources of financing."

- AP